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Barclays CEO Bob Diamond Resigns, Citing 'External Pressure'

Bob Diamond has shocked the world of finance by resigning as CEO of Barclays in the midst of the Libor rate-rigging scandal. The American executive, highly-regarded among his peers in the banking industry, said in an official statement today that “external pressure placed on Barclays has reached a level that risks damaging the franchise.”

He added: “I am deeply disappointed that the impression created by the events announced last week about what Barclays and its people stand for could not be further from the truth.”

Diamond’s denials relate to some recent chastisement from British regulators. Less than a week ago, they fined Barclays £290 million (about $450 million) for trying to manipulate the rates at which banks lend to one another, known as Libor and Euribor. Other British banks are reportedly being investigated, but Barclays’ shares tanked by 15% the next day, and there followed calls for a change to investigate the way Libor is determined.

Libor represents the foundations for a multi-billion dollar market for financial transactions. Currently it is the average rate at which a group of ‘panel banks’ that represent the London money market, including Barclays, HSBC and Royal Bank of Scotland, will lend to each other. It is announced each day at 11am by Thomson Reuters and is seen as the most important benchmark rate in the world for short-term interest rates. It’s used to help price swaps, futures and options, not to mention the way banks set their own interest rates for customers and businesses.

Just yesterday Barclays confirmed that its chairman, Marcus Agius would resign as a result of the scandal, while the British government announced it would launch two inquiries into the setting of Libor and the banking industry itself.

News of an additional exit by Diamond, the CEO himself, thus seems extraordinary. Diamond has almost legendary status in the banking world, having brokered a ballsy deal at the height of the credit crisis in 2008 to buy Lehman Brothers’ Northern American banking and capital markets business on the cheap. Barclays went on to climb the ranks of Wall Street investment banks, and Diamond oversaw the lucrative sale of ETF-business iShares.

So why has he been caught in the crosshairs? That is likely because of a conversation that reportedly took place between Diamond and Britain’s central bank, four years ago. When the Financial Services Authority (FSA) fined Barclays on June 27, it cited on page 36 of its report, a “telephone conversation between a senior individual at Barclays and the Bank of England during which the external perceptions of Barclays’ Libor submissions were discussed.”

According to the BBC, that conversation took place between the Bank of England’s Paul Tucker, (the current favorite to succeed central bank head Sir Mervyn King) and Diamond.

According to the BBC’s Robert Peston, Tucker and Diamond have quite different recollections of that conversation, key because what transpired may have been a fateful misunderstanding. Barclays officials reportedly believed that the Bank of England was instructing them to make false submissions about their borrowing costs. This scandal could have deeper implications for the Bank of England itself.

Diamond is scheduled to be questioned by a committee of Members of Parliament on Wednesday. If he wants to fight back against the “external pressures” that he feels were unfairly put on Barclays and himself, he may choose to reveal some startling details about his encounters with regulators, and the Bank of England too.

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